GST/HST on commercial property: buying, renting and selling

Is GST/HST payable when I buy a new or used commercial property?

Yes, a sale of Canadian commercial real property is generally taxable whether the building is new or used. The small-supplier rule does not, by itself, make a taxable property sale exempt. First identify what is being sold: a warehouse, office or shop is different from a residential complex, and land or a mixed-use building can need a separate analysis. An individual landlord's sale is not automatically exempt: a shop held mainly for use in a rental business carried on with a reasonable expectation of profit is generally taxable. Other individual or personal-trust sales need their own exemption check (CRA: commercial real property).

GST/HST on a taxable real-property sale generally becomes payable when ownership transfers or possession transfers under the sale agreement, whichever happens first. A deposit paid earlier does not usually move that date forward (Excise Tax Act, subsection 168(5); CRA: real property). The property’s location determines the applicable GST/HST rate (CRA: place of supply). The closing statement should say whether the seller will collect the tax or the buyer must pay the CRA directly.

When does a registered buyer self-assess instead of paying the seller at closing?

For a taxable sale of commercial property, a seller generally does not collect GST/HST if the buyer is registered when tax becomes payable. The buyer accounts for the tax on its GST/HST return or Form GST60, as applicable, and pays any positive amount due. Self-assessment is not a tax exemption (Excise Tax Act, subsection 221(2); CRA: who remits real-property tax).

The seller also generally does not collect if the seller is a non-resident, even when the buyer is not registered (Excise Tax Act, subsection 221(2)). An individual buying a residential complex has a different collection rule, so do not apply a commercial unit's closing treatment to a home. Both parties should keep the buyer's GST/HST registration confirmation and the agreement or closing statement showing who will account for tax. Paying the seller by mistake does not remove a buyer's duty to self-assess where the law assigns it to the buyer (CRA: real property).

Should the buyer register before closing?

If the buyer wants to report tax directly instead of paying a resident seller at closing, the actual buyer's registration generally must be effective when purchase tax becomes payable. A small supplier planning taxable commercial rentals may register voluntarily. That date is usually the application date, though the CRA may accept a date within 30 days before receiving the application. The registration must belong to the actual buyer, whether an individual, partnership or corporation (CRA: registration dates).

If registration is not effective when tax becomes payable, a resident seller generally collects tax on the taxable sale. A non-resident seller is an exception: an unregistered buyer required to pay directly generally files Form GST60. The buyer cannot treat a later registration as proof that it was registered at closing (CRA: who remits real-property tax). If the buyer was a small supplier and later registers while still holding the property for commercial activity, the CRA's new-registrant rules may allow an ITC based on the property's basic tax content at that later date, subject to the real-property rules. It is not automatically the full tax paid at purchase (CRA: new registrants).

Where does the buyer report self-assessed GST/HST, and can an ITC offset it?

A buyer who must pay the CRA directly reports the tax on its regular GST/HST return or on Form GST60, depending on registration and intended commercial use. An eligible input tax credit (ITC) can offset the tax, but the buyer must calculate the tax and ITC separately (CRA: who remits real-property tax).

For Quebec property, a buyer who pays tax directly reports GST and QST to Revenu Québec. An unregistered buyer, or a registered buyer not intending primarily commercial use, uses Forms FP-505-V and FP-505.D.A-V and pays by the end of the next month. A registered buyer intending primarily commercial use reports on its regular return and pays by that return's filing deadline (Revenu Québec: real property).

The line 205 test concerns where to report the tax. The ITC test concerns how the property will be used; they are not the same test. A buyer using some space for exempt residential rentals may owe tax that its ITC does not fully offset (CRA: capital real property ITCs). For routine return filing and ITC records, see Filing GST/HST and input tax credits.

Do I charge GST/HST on commercial rent and extra rent?

Commercial rent is generally a taxable supply. A registered landlord generally charges GST/HST on base rent and on amounts that are part of the lease price, including percentage rent, common-area charges and property-tax recoveries (CRA: commercial rentals and additional rents). Use the rate for the province where the leased property is located during each lease period, even if the landlord or tenant is elsewhere (CRA: place of supply).

Calling an amount “extra rent” does not settle its tax treatment. For example, a property-tax recovery paid to the landlord, or to the municipality on the landlord’s behalf, is generally part of taxable rent; a tax for which the tenant is directly liable to the municipality is different. Separately stated interest on overdue rent can also have a different treatment. Read the lease and the legal obligation behind each charge before invoicing (CRA: additional rents).

What if rent is below the small-supplier limit and the landlord is not registered?

An unregistered landlord who remains a small supplier generally does not collect GST/HST on commercial rent and cannot claim ITCs for the related costs. The landlord can choose to register for taxable rentals, after which collection and eligible ITCs apply (CRA: commercial rentals; CRA: registration).

The usual small-supplier limit is $30,000 in taxable supplies over the CRA’s calendar-quarter test. Count the landlord’s worldwide taxable supplies, including zero-rated supplies and those of associates; do not judge eligibility from this lease alone. Sales of capital property are excluded from that threshold calculation, though a taxable property sale may still require tax to be collected. The timing of crossing the limit changes the date collection starts. See When to register for GST/HST for the full test (CRA: registration thresholds).

If a tenant requests a GST/HST invoice while the landlord remains an unregistered small supplier, provide an invoice without GST/HST. Registration should be settled before tax is added to future rent.

What if I should have charged GST/HST on past commercial rent?

First determine when the landlord ceased to be a small supplier or became registered. Rebuild taxable rent and extra rent by reporting period, then correct the GST/HST that became collectible even if tenants never paid it. A registrant’s return includes tax it was required to collect on paid and unpaid invoices; overdue balances can attract interest (CRA: line 103 and interest; Excise Tax Act, section 225). A late return with tax owing can also incur a federal penalty: 1% of unpaid tax, plus 25% of that base for each complete month late, up to 12 months (Excise Tax Act, section 280.1).

Gather leases, rent ledgers, issued invoices, earlier returns and the registration notice. Confirm the registration date. For a period already filed, use the CRA's Adjust a return service or send a signed adjustment letter; do not file a second return. File missing returns and check the lease before seeking tax from tenants (CRA: change a return). A tenant’s ability to claim an ITC is separate from the landlord’s obligation to account for the tax.

The person behind the landlord may also owe unpaid tax. A sole proprietor owes their own GST/HST. Under Excise Tax Act subsection 272.1(5), general partners and former general partners can owe partnership GST/HST arising while they were members, and members at dissolution can owe later dissolution obligations. Under section 323, corporate directors can owe unremitted net tax, interest and penalties if its collection conditions are met; due diligence is a defence, and assessment must occur within two years after the person last ceased to be a director.

Do I charge GST/HST when I sell the commercial property, and who remits it?

A commercial property sale can be taxable even if the seller is unregistered or its only taxable activity is a one-time property sale. First confirm whether an exemption applies, especially for an individual or personal trust. On a taxable sale, the buyer generally accounts for tax directly if registered or if the seller is a non-resident. Otherwise the seller normally collects and remits (CRA: sales and registration; Excise Tax Act, subsection 221(2)).

An individual or personal trust can elect to tax an otherwise exempt sale made in an adventure or concern in the nature of trade. Outside Quebec, the seller signs GST22 type 1 and files before entering the sale agreement (CRA: Form GST22). In Quebec, the seller uses FP-2022-V type 1 and files before the earlier transfer of possession or ownership (Revenu Québec: FP-2022-V).

For an otherwise exempt sale back to the registered original vendor under a repurchase right or obligation in the original agreement, an individual or personal trust may use type 3 within one year of first taking ownership or possession if its other conditions are met. Both parties sign; the original vendor files GST22 with its return reporting the purchase tax, or immediately after filing electronically. In Quebec, use FP-2022-V with the original vendor's return for the resale period, or mail it after an electronic return (CRA: Form GST22; Revenu Québec: FP-2022-V).

If substantially all assets needed to operate a business transfer with the property, seller and buyer may jointly elect on Form GST44, or FP-2044-V in Quebec. A registered buyer files it by the GST/HST return deadline for the first period when tax would otherwise be payable; a taxable property sale to an unregistered buyer remains taxable. See Buying an existing business (Excise Tax Act, section 167; Revenu Québec: sale of a business). Outside Quebec, an unregistered seller required to collect on a taxable property sale uses Form GST62 and files it by the end of the month after tax becomes collectible (CRA: who remits). In Quebec, an unregistered seller uses Forms FP-505-V and FP-505.D.F-V and files by the end of the month after tax became collectible (Revenu Québec: non-registrant return; FP-505-V instructions).

A buyer or other recipient taking property from a non-arm's-length seller for less than fair market value can also become liable for that seller's unpaid GST/HST. Excise Tax Act section 325 limits liability by the tax debt and value shortfall, subject to its offsets, but allows assessment at any time.

How do I split GST/HST and ITCs for a building with shops and apartments?

Treat the commercial and residential portions as separate supplies for GST/HST. If one price covers shops and apartments, allocate it reasonably between the two portions and keep the valuation basis with the agreement. Apply tax to each portion according to its own status; a taxable shop does not make the apartments taxable (Excise Tax Act, subsection 136(2); CRA: mixed-use property). See GST/HST on residential property for residential units and rebates.

For an existing building with occupied apartments, tie purchase tax and costs to the commercial or residential portion when possible. Split shared operating costs by a fair, reasonable method, such as relevant floor space, and apply it consistently. Floor space does not automatically establish each portion's sale value. Keep the floor plan, valuation, invoices and calculation. The portions are separate properties for this purpose: do not apply a commercial-use threshold to the building as a whole. New construction held for rental can work differently: residential construction costs may initially support ITCs, followed by a taxable residential self-supply. See GST/HST on residential property for that step (CRA: mixed-use real-property ITCs). If a capital-property portion itself has both commercial and exempt use, CRA’s general purchase ITC rules for registrant corporations and partnerships are (CRA: capital real-property ITCs):

The same broad pattern applies to individuals, but an individual cannot claim a purchase ITC if the property is primarily for that individual’s or a related individual’s personal use. Financial institutions and public service bodies have different rules. A later change from taxable commercial use to exempt use can also trigger a GST/HST adjustment (CRA: capital real-property ITCs and changes in use).

Example

Illustrative amounts in Canadian dollars. A GST/HST-registered corporation buys a Manitoba warehouse for C$1,000,000. Assume GST on the taxable sale is C$50,000, the seller is resident in Canada, and the corporation will use the warehouse entirely for taxable commercial rentals. The seller does not collect the GST at closing. The buyer reports C$50,000 on line 205 and, if all ITC conditions are met, claims a C$50,000 ITC. The purchase then creates no net GST payment on that return, although both entries must be reported (CRA: who remits and claims ITCs). A building with shops and apartments would need separate supplies and a different ITC calculation.

Different for you?

• You are still deciding whether to register: calculate all taxable supplies and the effective date before closing. See When to register for GST/HST.
• The property includes homes or apartments: residential sales, leases and rebates follow separate rules. See GST/HST on residential property.
• You need to support an ITC or correct a return: see Filing GST/HST and input tax credits and GST/HST reviews and audits.
• The property is in Quebec: check Revenu Québec’s real-property rules for GST and QST reporting. If your business is based outside Quebec, see Doing business in Quebec from another province.
• Closing involves a non-resident seller, a mixed-use building, or a business-sale election: confirm the agreement, registration effective date, allocation and who remits before closing. See bookkeeping support.